KUALA LUMPUR: A rebound in aluminium prices is raising the earnings outlook of Press Metal Aluminium Holdings Bhd, which remains one of the beneficiaries of a structural demand shift in the commodity, said RHB Research.
"We expect the current supply tightness caused by the continued Russia-Ukraine war, the matured stage of the monetary cycle, and the reopening of China’s economy to continue lending support to aluminium prices," it said in a company update.
The research firm said despite a moderation in 4Q22 topline growth to 1% year-on-year (y-o-y) in view of softer aluminium prices, core earnings growth should rise 16% as a result of the easing price of alumina.
The average aluminia-to-aliminium cost ratio stood at 13.8% in January, largely unchanged fro 4Q22.
Meanwhile, carbon anode prices eased 7% to an average of RMB6,540 in January versus RMB7,040 in 4Q22.
Updating its forecasts, RHB lowered 2022 earnings projections by 10% after factoring in a lower premium assumption.
However, it lifted 2023-2024 earnings estimates by 6% and 9% respectively in view of the rebound in aluminium prices coupled with a favourable cost ratio.
RHB said its 2023 aluminium price forecast was revised higher to US$2,600 per metric tonne (MT) from US$2,400/MT, with every US$50 appreciation to potentially increase Press Metal's earnings by 4%.
The research firm maintained a "buy" call on the company with a higher target price of RM6.18, up from RM5.66 previously.
According to RHB, the reopening of China's borders have raised LME aluminium prices to US$2,600 per metric tonne (MT), bringing its average price in January to US$2,500/MT, up from US$2,400 in December 2022.
It noted also the International Monetary Fund's upward revision of its 2023 global growth projection to 2.9% from 2.7% in October 2022.
"We expect Press Metal's timely shift to hedge 35% of its forward sales in 2023 (from 60% in 2022), to accord it with ample upside from the strengthening of aluminium prices," it said.